Question

Percy Productions has three models: D, E, and F. The following information is available:

?	Model D	Model E	Model F
Sales revenue	$65,000	$37,000	$24,000
Variable expenses	$35,000	$15,000	$14,000
Contribution margin	$30,000	$22,000	$10,000
Fixed expenses	$16,000	$16,000	$16,000
Operating income (loss)	$14,000	$6000	-$6000

Percy Productions is thinking of discontinuing model F because it is reporting an operating loss. All fixed costs are unavoidable. Assume Percy Productions is able to increase the sales revenue of product F to $32,000 with no change in volume of units sold and no change in variable costs or fixed costs. What effect will this have on operating income?

		Decrease $24,000
		Increase $24,000
		Increase $11,000
		Decrease $11,000

Answer 1

Correct answer------------Decrease by $10,000

It seems like none of the options are correct. I have solved answer on the basis of the data and not considered options.

Working

Situation before discontinuing F
	Model D	Model E	Model F	TOTAL
Sales revenue	$65,000.00	$ 37,000.00	$ 24,000.00	$ 126,000.00
Variable expenses	$35,000.00	$ 15,000.00	$ 14,000.00	$    64,000.00
Contribution margin	$30,000.00	$ 22,000.00	$ 10,000.00	$    62,000.00
Fixed expenses	$16,000.00	$ 16,000.00	$ 16,000.00	$    48,000.00
Operating income (loss)	$14,000.00	$ 6,000.00	$   (6,000.00)	$    14,000.00

.

Situation After discontinuing F
	Model D	Model E	Model F	TOTAL
Sales revenue	$65,000.00	$ 37,000.00		$ 102,000.00
Variable expenses	$35,000.00	$ 15,000.00		$    50,000.00
Contribution margin	$30,000.00	$ 22,000.00	$             -	$    52,000.00
Fixed expenses	$16,000.00	$ 16,000.00	$ 16,000.00	$    48,000.00
Operating income (loss)	$14,000.00	$ 6,000.00	$ (16,000.00)	$      4,000.00

Total income before Discontinuing F	$ 14,000.00
Total income after Discontinuing F	$ 22,000.00
Net decrease in income	-$   8,000.00